CHC Helicopter flies on takeover news; Mobile Mini dives; little impact from GMAC/ResCap downgrade

By Paul Deckelman and Paul A. Harris

New York, Feb. 22 - It was up, up and away for the bonds of CHC Helicopter Corp. on Friday, after the Richmond, B.C.-based oilfield airborne transportation company announced that it had agreed to be taken private by First Reserve Corp. in a C$1.5 billion (US$1.48 billion) transaction; they gained about 10 points on the likelihood that those bonds will be taken out via a tender offer as part of the deal, although there was not all that much activity in them.

Another M&A story sent Mobile Mini Inc.'s bonds in the opposite direction - not surprisingly since the Tempe, Ariz.-based provider of portable storage solutions figures to be the buyer in the $701.5 million deal, rather than the buyee. However, Mobile Mini's bonds did improve a little from their intraday lows.

Elsewhere, several traders saw little real movement in the bonds of either Residential Capital LLC or the Minneapolis-based mortgage lender's corporate parent, GMAC LLC, following a Standard & Poor's downgrade of both companies.

A high yield syndicate source said that the CDX index closed Friday at a spread to Treasuries of 697 basis points, a far cry better than its all-time wide of 737 basis points, reached on Feb. 11.

Before the cheering had a chance to intensify, however, the source added, there is little if any evidence to indicate that the high yield has yet reached its bottom.

Primary market activity meantime remained at a standstill; in fact, there were no pricings at all during the whole week, the fourth such shutout since the start of the year.

Market indicators mostly positive

A trader said that the widely-followed CDX index of junk market performance was essentially unchanged on the session at 87¾ bid, 88¼ offered. Meanwhile, the KDP High Yield Daily Index inched up by 0.03 to end at 73.93, while its yield narrowed by 2 basis points to 9.65%.

In the broader market, advancing issues led decliners by a slight margin. Overall activity, reflected in dollar volumes, slid by nearly 22% from Thursday's levels. Several traders, commenting on the paucity of real activity, mentioned the snowstorm which blasted New York and other Northeastern business centers as a very real factor in holding down attendance and activity on Wall Street in general.

Storm brings abbreviated week to a merciful close

One New York-based trader - who said that "absolutely nothing" was going on, outside of the CHC and Mobile Mini situations - opined that "most people that even made it into work got here and then didn't feel like doing anything."

He said that with things having been closed at the outset of the week for Monday's federal legal holiday, Presidents Day, and then having seen some, but not all, participants stumbling back into work after the long layoff over the next few sessions, "it was a tough week, with a lot of vacations. A lot of us are glad it's over and look forward to starting fresh on Monday, hopefully fully staffed."

In a commentary on Friday, Fitch Ratings pretty much agreed that the high yield market "continued to languish this week, as investors remained disconcerted by the continuing turmoil in the credit markets as well as several negative economic signals." This not only took a toll on primary activity, with the failure of any issues to come out of the gate, but on the secondary market as well; Fitch called it "similarly quiet, as many participants sat on the sidelines following the three-day holiday weekend."

The analysts noted that the widely followed Merrill Lynch High Yield Master II Index fell by 1.308 points for the week, closing at 574.301 on Thursday, down from 575.609 a week earlier. The total return for the Master II Index was a loss of 23 bps, bringing the total loss for the year-to-date period to 2.79%, which at that rate translates to a yawning 18.01% deficit on an annualized basis.

The Fitch analysts also observed that the Master II Index's yield-to-worst increased by 12 bps on the week to 10.46% from 10.34% the previous week, while the option-adjusted spread widened by 10 bps to 735 bps over U.S. Treasuries from 725 bps a week earlier.

CHC Helicopter takes off

But all of the news was not negative - certainly not for holders of CHC Helicopter's 7 3/8% notes due 2014, which one trader called "the big winner on the day, calling the bonds up 8 points at 99 bid, 101 offered on the takeover news.

Another trader called the bonds 99 bid, par offered, well up from 91 bid, 93 offered previously, attributing the jump to "speculation that they're going to be taken out, or something of that nature."

In fact, the deal calls for the buyer to assume CHC's debt and aircraft leases, bringing the total value of the transaction to C$3.7 billion, company executives said during a conference call with analysts, and they raised the possibility that they might tender for the bonds.

In announcing the deal, the two companies said that completion of the transaction "is not expected to require the consent" of the 7 3/8% bondholders, although the statement added that CHC "may choose to make a tender offer and related consent solicitation for the senior subordinated notes prior to the completion of the transaction," conditioned on the closing of the deal.

Whether such a tender offer for the bonds is made or not, their indenture requires that a change-of-control offer for any and all remaining outstanding bonds be made at 101, plus accrued interest, within 30 days of closing the takeover deal, which is expected to occur sometime in the second quarter.

One of the traders noted that while the bonds' price zoomed up to around the anticipated takeout level, "there was very light activity" in the credit, with only several block trades of $500,000 to $750,000 seen.

CHC Helicopter's New York Stock Exchange-traded shares meantime jumped $8.43, or 39.21%, to end at $29.93 on volume of nearly 200,000 shares, about eight times the norm.

Mobile Mini gets mauled

The day's other notable mover was Mobile Mini, whose 6 7/8% notes due 2015 were seen having fallen as low as 80.5 on the day, a loss of about 6 points from the levels they recently occupied, although a market source saw the bonds having come off their lows late in the session to end around 81.5, a 5 point loss.

Mobile Mini will acquire Glendale, Calif.-based rival Mobile Storage Group Inc., buying the shares for $12.5 million in cash and shares of newly issued Mobile Mini convertible preferred stock with a liquidation preference of $154 million, and will assume approximately $535 million of Mobile Storage Group's outstanding debt.

Moody's Investors Service put Mobile Mini's B1 senior notes rating and Ba3 corporate family rating under review for a possible downgrade, "based on the expectation that post-acquisition leverage will increase from current levels and that interest coverage will weaken." The agency noted, however that Mobile Mini "has consistently operated with a conservative leverage profile . . . and [Moody's] expects the company to use cash flow for debt reduction."

Little ResCap change despite downgrade

A trader said he saw Residential Capital LLC's bonds "unchanged on their news," which included a downgrade by Standard & Poor's. He also saw ResCap parent GMAC likewise steady.

Another trader agreed that GMAC's 8% bonds due 2031 were unchanged at 78 bid, 80 offered, and did not see any levels on ResCap.

At another desk, the GMAC benchmarks were measured down ¼ point at 79.5 bid. ResCap's 8 3/8% notes due 2015 were down ½ point at 59 bid, while its 6% notes due 2011 were quoted at 60 bid.

However, a dissenting view came from another market source who saw the GMAC 8s swinging around in a nearly 6 point arc before coming to rest just under 79, which the source saw as a nearly 4 point loss. Its 5 1/8% notes slated to come due in May were seen off ½ point at 99.25. The source quoted ResCap's 6 1/8% notes coming due in November at 79, down more than ½ point.

In the credit-default swaps market, the cost of protecting holders of GMAC debt against a default were seen having widened by about 5 basis points on the day to 910 bps bid, 915 bps offered. ResCap's CDS costs were meantime seen unchanged at 36% upfront plus 500 bps annually.

That followed on the news, disclosed in a Securities and Exchange Commission filing, that GMAC - which last year loaned its problem child $1 billion to help it meet minimum net worth requirements under its credit facility agreements - will loan it at least $635 million more and possibly as much as $750 million to help ResCap as it attempts to sell its Business Capital Group financing operation which funds development of vacation resorts - an asset sale which some observers in the market see as a potentially difficult sell, given the current credit environment.

Those credit conditions are prominent in the corporate mind of Standard & Poor's, which downgraded ResCap to B/C from BB+/B previously and cut GMAC to B+/C from BB+/B, both with negative outlooks. S&P cited its concerns that the companies may struggle to fund their operations efficiently as the global credit crunch continues.

The agency said that it downgraded ResCap on worries that the mortgage lender still faces a difficult funding environment and may not get much support from its ultimate owners, i.e., GMAC's 51% corporate parent Cerberus Capital Management and 49% owner General Motors Corp.

Autos little changed

Besides seeing the GMAC bonds unchanged, a trader saw GM's benchmark 8 3/8% bonds due 2033 hanging in at 78 bid, 80 offered, while domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were unchanged at 69 bid, 71 offered.

Another market source quoted those bonds up more than half a point at just over the 79 level, in active dealings.

Parts supplier Lear Corp.'s 8¾% notes due 2016 were seen down 1¼ point at around the 87 bid level.

Chesapeake off despite capital plan

Outside of the autos, Chesapeake Energy Corp. said it was executing its plan to monetize certain assets, and fund capital expenditures through 2009.

However, the news was little help to the Oklahoma City-based independent oil and gas exploration and production company's 6¼% notes due 2018, which were seen down ½ point around the 96 level.

Tech issues better

A trader saw some strength in the high-tech sector. He saw Dutch computer-chip maker NXP's 7 7/8% notes up 2 points on the session at 90 bid, 91 offered, and meanwhile pegged Austin, Tex.-based chip-maker Freescale Semiconductor's 10 1/8% notes due 2016 a point better at 71 bid, 72 offered, although he had not seen any specific news that might explain the rise.

Another market source saw Freescale's 8 7/8% notes due 2014 a point better at 82.25 bid.

At another desk, NXP's 9½% notes due 2015 were quoted up almost 2 points at 85.5 bid.

Primary stays quiet

Meanwhile the primary market failed to generate any news.

And as Friday went, so went the week.

No high yield issues were priced during the four sessions which followed the three-day Presidents Day holiday weekend.

At Friday's close, year-to-date issuance stood at $7.9 billion in eight tranches.

However more than 80%, or $6.335 billion, of the year's issuance is related to the approximately $200 billion backlog of LBO-related risk overhang left on the balance sheets of the underwriters.

Apart from that backlog-related issuance the market has seen $1.572 billion price in an even half dozen tranches.

The most recent junk deal to clear was Elyria Foundry Co.'s $100 million issue of 13% five-year senior secured notes which were priced on Feb. 14 via Jefferies & Co.

Extremely thin calendar

As the final week of February 2008 gets underway, only two deals are on the forward calendar.

Rock-Tenn Co. began a roadshow on Friday for a downsized $200 million offering of eight-year senior notes (Ba3/BB-).

An investor call is scheduled for Wednesday, and the roadshow is set to conclude on Friday.

Banc of America Securities, Wachovia Securities and SunTrust Robinson Humphrey are joint bookrunners for the acquisition financing from the Norcross, Ga., manufacturer of packaging products.

Sell-side sources who were particularly discouraged by the failure of Axcan Intermediate Holdings Inc. to place a downsized $235 million tranche of senior notes (B3/B-) on Feb. 13, are keen to see the Rock-Tenn deal get done. And they argue that given its four-B credit ratings Rock-Tenn certainly ought to get done.

As an aside, although Axcan failed to place the unsecured notes it did place a $228 million issue of 9½% seven-year senior secured notes (Ba2/BB-) which were added to the bond portion of the financing when the company eliminated a proposed $385 million institutional term loan B.

Apart from Rock-Tenn, Ainsworth Lumber Co. Ltd. is expected to price a $50 million to $75 million offering of six-year senior secured first-lien notes before Friday's close.

Barclays Capital has the books for the offering which is being marketed without an investor roadshow.

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